International Trade

Theory and Practice

Zhejiang Normal University

 Review
1 What is international trade?
2 What are the major motivations for firms to operate
international business?
3 What measures do most companies usually adopt to
avoid wild swings in the sales and profits?
4 Please give the four major operation forms chosen by
most companies.
5 What limits a firm’s sales?
6 What does “royalties” mean?
7 Please try to finish all the exercise in the text book.
Chapter 2 General Procedures of Export and
Import Transaction
Main Points in this Unit

Section One Procedures of Export and

Import Transaction

Section Two Business Negotiation

Section Three Basic Qualities for Good

Negotiators
 Section One Procedures of Export and
Import Transaction
1 What is Exporting
2 Procedures of Export
1) Making market research
2) Marketing and Promotion
3 What is Importing
4 Parties involved in export and import transaction
5 Specialists involved in export and import transactions
6 Basic Documents needed in Export and Import Transaction
Please look at the following draft (Export Procedures under CIR on
the side of Seller)
Export Procedures under CIR on the side of Seller
 Acceptance

Signing Contract Applying Import License

Procedures of Import Transaction

Opening L/C

Chartering Space Ship

Delivery

Insurance Checking L/C Track Goods

Arrival

Declare and Discharge

Discharge

Settlement Claims, Adjustment

Conclusion
Market Research

Any exporter who wants to sell his products in a foreign

country or countries must first conduct a lot of market research.
Market research is a process of conducting research into a
specific market for a particular product. Export market
research, in particular, is a study of a given market abroad to
determine the needs of that market and the methods by which the
products can be supplied. The exporter needs to know which
foreign companies are likely to use his products or might be
interested in marketing and distributing the products in their
country.
 Parties involved in export and import transaction

* the exporters * the importers

* the port authority * the shipping company (for
sea freight)
* the airline (for air freight) * the insurance company or
brokers
* the exporter’s bank * the importer’s bank
* the railways (in some cases) in the importer’ country
* the road hauler ( in some case) in the importer’ country
* the shipping agent at the port or airport of discharge
* the shipping agents at the port or airport of loading
* the railway (in some cases)in the exporters’ country
* the road hauler (in some cases) in the exporter’s country
* the exporters * the importers
* the port authority * the shipping company (for sea freight)
* the airline (for air freight) * the insurance company or brokers

* the exporter’s bank * the importer’s bank

Parties Involved in Exp. &
Imp. Transaction

* the railways (in some cases) in the importer’ country

* the road hauler ( in some case) in the importer’ country
* the road hauler ( in some case) in the importer’ country
* the shipping agent at the port or airport of discharge
* the shipping agents at the port or airport of loading
* the railway (in some cases)in the exporters’ country
* the road hauler (in some cases) in the exporter’s country
 Specialists involved in export and import transactions

A shipping agent and /or foreign forwarder (forwarding agent) will take
responsibility for the documentation and arrange for the goods to be shipped
by air, sea, rail or rail. Theses services may be carried out by the supplier’s
own export department, if they have the expertise.
Airlines, shipping lines, railway companies or haulage contractors will actual
transport the goods.
Both the importer’s and exporter’s banks will be involved in arranging
payments if a letter of credit or bill of exchange is used.
Customs and Excise officers may need to examine the goods, check import or
export licences and charge duty and /or VAT.

A chamber of Commerce may need to issue a certificate of origin, if this is

required by the importer’s country.
An insurance company insures goods in transit.
A lawyer if a special contract has to be drawn up.
 Basic Documents needed in Export and Import Transaction

An import/export transaction usually requires a lot of complicated documents

because it is difficult to make many different arrangements when one firm is
dealing with another on the other side of the world. The number and type of
documents needed depend on the specific requirements of the exporter and
importer. Generally, the documents needed include:
1). Bill of Lading
2). Commercial Invoice
3). Proforma Invoice
4). Consular Invoice
5). Packing List
6). Weight Memo
7). Certificate of Inspection
8). Certificate of Origin
9). Insurance Policy (Certificate)
10). Sales Contract
11). Sales Confirmation
 Section Two Business Negotiation

Review
1 General Procedures of Export and Import Transaction
2 What is export?
3 What is import?
4 Parties involved in export and import transaction
5 Specialists involved in export and import transaction
6 Basic documents needed in export and import
transaction
 Business Negotiation

What is business negotiation?

Business Negotiation is a bargaining situation

in which two or more players have a common
interest to cooperate, but at the same time
have conflicting interests over exactly how to
share.
• Features of Business Negotiation
In negotiations, both parties should know
the following
• Why they negotiate;
• Who they negotiate with;
• What they negotiate about;
• Where they negotiate;
• When they negotiate;
• How they negotiate;
 Business Negotiation
• Inquiry
↓
indispensable • Offer
link ↓
• Counter-offer
↓
indispensable
• Acceptance
link
↓
• Conclusion of Contract
• Offer, and acceptance are two
indispensable links for reaching an
agreement and concluding a contract.

The ways of Negotiation:

Oral
Written (letter, fax, email, telex, cable,
etc.)
 Contents to be Negotiated
All the transactions conditions and terms
should be negotiated:
Price
Packing
Contract Insurance
Payment
Shipment
Arbitration
and so on
 Enquiry
• What is an enquiry?

An enquiry is a request for business

information, such as price lists, catalogue,
samples, and details about the goods or trade
terms. It can be made by either the importer or
the exporter. On receiving the enquiry, it is a
regular practice that the exporter should reply
to it without delay.
– The seller and the buyer both can make
an inquiry. Usually, the inquiry made by
the buyer is also called bid, and the
inquiry made by the seller is also called
selling inquiry.
– Inquiry will not bind upon both parties,
but usually when you receive an inquiry,
you should reply it as soon as possible
 Offer
（1）The meaning of an offer
* An offer is a proposal made by sellers to
buyers in order to enter into a contract. In
other words, it refers to trading terms put
forward by offerers to offerees, on which
the offerers are willing to conclude
business with the offerers. There are two
kinds of offers, one is the firm offer, the
other, non-firm offer.
* The party who makes an offer is called
an offeror, in the case of the seller, the
offer is called a selling offer, while in the
case of the buyer, and it is called a
buying offer or a bid.

firm offer non-firm offer

http://training.mofcom.gov.cn
 （2）The basic conditions of an offer

• I ) The offer shall be made to one or

more specific persons
– The offer shall be the definite
representation in which the offeror
expresses that he shall conclude
transaction on the terms and conditions
stipulated therein.
II) Contents of the offer shall be
sufficiently definite, i.e., trade terms of the
offer shall be complete, clear and final
* The “Convention” stipulates that a
sufficiently definite offer should include three
basic elements: name, quantity and price
* In our foreign trade practice, a complete
offer shall include the quality, quantity,
packing, price, terms of delivery of the goods
and terms of payment and so on.
 III) The offer shall indicate the intention of
the offeror to be bound in case of acceptance

* This intention may be indicated by

terms as “firm” offer, “offer with
engagement”, etc.
* If the offer has a restrictive condition,
i.e., “subject to our final confirmation”,
then it’s a non-firm offer regarded as an
invitation for offer.
 (3) Time of Validity or Duration of Offer
The term of validity is not an indispensable
condition of an offer
（1）Stipulate the latest date for acceptance. For
example:
OFFER SUBJECT TO REPLY HERE
FIFTEENTH, JULY
（2）Stipulate a period of time for acceptance
As to this method, there is a question of
computing validity time.
See article 20 of “Convention”
 (4) Time that an offer becomes
effective
Different views of the time that a
written form offer becomes effective ：
1. Despatch Theory
2. Arrival Theory
Both “convention” and our “contract
law” adopt arrival theory.
 (5) Withdrawal or revocation of an offer
A.Withdrawal （撤回）
–Definition of the withdrawal of an offer:
–The withdrawal of an offer means the
offeror’s intent indication to make an offer
invalid before the offer gets its effectiveness.
B. Revocation（撤销）
Definition of the revocation of an offer:
The revocation of an offer means the
offeror’s intent indication to make an offer
invalid after the offer gets its effectiveness.
 (6) Termination of an offer

In the following cases, an offer is

terminated:
• The time validity stipulated in the
offer becomes due;
• The offeree rejects or makes a
counter offer;
• The offerer revokes the offer before
acceptance.
 发盘流程
NO NO
发盘 送达生效 发盘失效

撤 撤 YES
回 消
YES
发盘无效
 Case 1
• [Case Description]:
• One Chinese export enterprise made a firm offer to an Italian
customer. The offer is subject to be replied before May 10th.
On May 9th the Italian customer informed the Chinese export
enterprise with express letter that the offer could be accepted.
But the express was delayed by the express deliverer. Before
the Chinese export enterprise received the express letter, they
got news that the market price for the goods was going upward.
• Question:
• What should the Chinese export enterprise do in this situation?
 Case 2
• [Case Description]:
• Company C of China received an offer from Company D in Paris, France on
date July 16th, 2009: “500 metric tones of tinplate, 545 U.S. dollars per metric
ton CFR China port, shipment in August, with sight letter of credit, the offer’s
opening day is within 20 days.”
• Company C replied on date 17th “If the unit price is 500 U.S. dollars CFR
Chinese port, then we can accept 500 metric tones of tinplate, arbitration will be
claimed in China in case of a contract dispute.” Company D replied: “The
market is strong so the price can not be reduced, arbitration conditions is
acceptable and reply ASAP.” At that time tinplate prices did trend up. On 19th
Company C replied : “We’ve accepted the offer you sent on 16th and the L/C
has opened by the Bank of China, please confirm it.”But the French Company
had not identified it and returned the L/C.
• Questions:
• (1) Whether the contract was established, and why?
• (2) Whether it’s Company C’s misplay?
 Case 3
• 2．Company A from Britain offered Company B from Germany,
in which Company A sold a batch of goods to Company B.
Company B replied to Company A the next morning (May 6th)
when he received the offer. When replying, Company B agreed
to accept all the terms in the offer. But Company A found that
after he sent out his offer, the price for the goods that he was
going to sell was in the rise. So he telephoned Company B on the
afternoon of May 7th, hoping to cancel the offer. On the morning
of May 8th company A received Company B’s reply.
• Question:
• According to the CISG, is there any business relation between
Company A and Company B?
 Case 4
• The offer made by a Chinese company to Company
A was subject to Company A’s reply by April 10th.
On April 9th, Company A made his reply to the
Chinese company to accept the offer by express mail.
Because of the delay of the transfer, the Chinese
company received the acceptance on April 11th.
Before the Chinese company received the acceptance,
they had got the news that the price of the goods
would go upward.
• Question:
• What should the Chinese company do in this case?
 3. Counter-Offer
A reply to an offer which purports to be an
acceptance but contains additions, limitations
or other modifications is a rejection of the
offer and constitutes a counter offer.
(1) A reply to an offer which alter the terms of
the offer materially constitutes a counter-offer
(2) An acceptance with restrictive conditions is
another form of counter-offer, such as
“subject to our final confirmation”.
(3) If offeree accepts the original offer after he
made a counter-offer, the contract is invalid.
 4. Acceptance
What is an acceptance
• An acceptance or a confirmation
is an unreserved assent of the
buyers or the sellers, who after
mutual negotiations are willing to
enter into a contract in accordance
with terms and conditions agreed
upon.
 In light of the usual practice in foreign
trade, an acceptance should abide by the
following requirements:
• An acceptance must be absolute(完全地) and
unconditional.
• An acceptance can be made by an act performed
by an offeree.
• An acceptance must be clearly expressed by the
offeree’s verbal or written statement.
• An acceptance must be made by offeree within
the valid period of a firm offer.
In conclusion:
• 1. It must be absolute and unconditional.
• 2. It can be made by an offeree’s act.
• 3. It must be clearly expressed by an
offeree’s verbal or written statement.
• 4. It must be made by offeree within the
valid period of a firm offer.
 Questions
1. What are the essential conditions of an offer?
2. According to the regulation of "convention",
when the offer can be withdrawal and revoked?
3. When an offer is terminated?
4. Try to analyze the effectiveness of a late
acceptance.
5. What are the essential conditions of a
contract established?
 Summary: NEGOTIATION OF CONTRACT

• ①询盘(Inquiry)

• ②发盘(Offer)
• 递盘(Bid)
•
•
buyer ③还盘(Counter-offer) seller
•
• 接受(Acceptance)
• 订立合同(Sign a contract)

合同成立的时间
（Effective time of contract） 合同的形式
合同生效的要件 （Forms of contract ）
（ Effective conditions 合同的内容
of contract） （Contents of contract）
 Contracts for the International Sale of
Goods

Review
What is an Enquiry?
What is an Offer?
What is an acceptance?
What are the two indispensable links for
reaching an agreement of contract?
Main Point in this Unit
Section One Definition of Contract（合同的定义）

Section Two Formation of Contract（合同的格式）

Section Three Performance of Contract（合同的履

行）
• Introduction
• Business as we know it today would be
impossible if there was no agreement or
contract to bind the contracting parties.
• Long ago, people devised a means for
bargaining for the conduct of others by
exchanging promises.
• The exchange of promises came to be known
as “agreements” and gradually became very
important in the lives of the people and in the
field of business.
• Introduction
• A promise or an agreement is reached as a
result of the process of offer and acceptance.
• When an agreement is reached, a contract is
formed, which creates legal obligations
enforceable by law.
• Contracts can be long or short, formal or
informal, simple or complicated, and verbal
or written, of which the most popular is the
written contract for pre-printed contract.
• Introduction
• The importance of a contract in an
international sales transaction cannot be
underestimated.
• So the exporter should avoid viewing the
contract merely as a document that initiates
transaction and subsequently is filed and
forgotten.
• Contracts must be drafted with an awareness
of the background of the law in which the
transaction takes place, with a clear
conception of the various services it may be
called upon to render, etc.
 Section One Definition of the
Contract
• What is contract
• A contract is an agreement between two or
more competent parties in which an offer is
made and accepted, and each party benefits.
It is an agreement which sets forth binding
obligations of the relevant parties.
• A contract is an agreement which sets
forth binding obligations of the relevant
parties. It is enforceable by law, and any
party that fails to fulfill his contractual
obligations may be sued and forced to
make compensation, though most
contracts do not give rise to disputes.
A contract proper includes:
1)the full name and address of the buyer and the
seller;
2) the commodities involved;
3) all the terms and conditions agreed upon;
4) indication of the number of original copies of
the contract, the language used, the term of
validity and possible extension of the contract.
1. Establishment time of contract
– Two standards for judgment:
– 1. When the effective acceptance
reaches offeror;
– 2. When offeree makes the behavior of
accepting.
2. The essential conditions of a contract come into
effective:
– 1) contracting parties should have signing
ability
– 2) the content of the contract should be legal
– 3) the contract should conform to legal
formality
– 4) contracting parties' meaning expresses
should be true
 The prerequisites（前提） required for
a contract to be recognized and enforced

• (1) A Valid Offer and a Proper Acceptance

• (2) Sufficiency of Consideration（对价）
• (3) Absence of Fraud, Force, or Legal
Loopholes
• (4) Legal Capacity
• (5) Consistency with General Public
 Section 2: Formation and main contents
of contact
1. Formation of contact
(1) Written contract
It is the basis that the contract is established
It is the basis of fulfilling contract
It is the basis that the contract comes into
force
It is the basis of arbitration or lawsuit.
(2) Oral form (3) Other forms
 2. Main parts of contract
Preamble
Body
Witness clause

约首，约文，约尾
Preface of a Treaty, Text of a Treaty,
End of a Treaty
CISG Article 11: A contract of sale need
not be concluded in or evidenced by
writing and is not subject to any other
requirement as to form. It may be
proved by any means, including
witnesses.

销售合同无须以书面订立或书面证明，
在形式方面也不受任何其它条件的限制。
销售合同可以用包括人证在内的任何方
法证明。
Various Formats of Contract In
Written
• Contract
• Confirmation
• Agreement
• Memorandum
• Letter of Intent
• Order
(http://222.200.98.43/trade)
 THE LAWS ARE APPLICABLE TO
INTERNATIONAL SALES CONTRACTS
◆International Trade Practice
☆International Rules for the Interpretation
of Trade Terms《国际贸易术语解释通则》
☆Uniform Customs and Practice for
Documentary Credit《跟单信用证统一惯例》
◆International Treaty
☆ Unite Nations Convention on Contracts for the
International Sale of Goods《联合国国际货物销售合同
公约》
◆Domestic Laws
☆ Contract law《中华人民共和国合同法》
 Modification or Termination of
Contract
• CISG Article 29:
• (1) A contract may be modified or terminated by the
mere agreement of the parties. (2) A contract in writing
which contains
• a provision requiring any modification or termination by
agreement to be in writing may not be otherwise
modified or terminated by agreement. However, a party
may be precluded by his conduct from asserting such a
provision to the extent that the other party has relied on
that conduct.
 Name of commodity
Quality
Quantity
Package
Price
Body
Payment
Transport and insurance
The time limit and place
of performance
The prevention and
handling of dispute
 NAME OF COMMODITY

• Generally, this clause is relatively simple,

we always list the names that in the offer
or counter-offer under the article of Name
of Commodity.
• And sometimes we only write several
sentences showing the two parties’
agreement on the business of some
commodity at the beginning of a contract.
 QUALITY
• In the quality clause we should clearly list the
name and detailed qualities of commodities. As
commodities are various, the ways showing
their qualities are not the same. So the terms of
quality must be fit for the characteristics of
commodities.
Stipulate the flexible range

Quality Use various kinds of

expression methods properly

Formulate the clause according

to actual ability
 QUANTITY

• The quantity clause mainly includes the

quantity and unit of commodity.
• To facilitate the performance of contract
and avoid disputes, the quantity clause
should be clear and detailed.
• In addition , it is improper to use
those uncertain words like about 、
circa、approximate to define the
quantity.
 Packing material

Method of packing

Package Specification of packing

Packing mark

Packing charges
 PACKING MATERIAL

• The packing for sea need firm

• The packing for rail need not
afraid of shaking
• The packing for air need light
• See the law of relative country
 METHOD OF PACKING

• Single packing
• Set packing
• Generally, choose set packing

SPECIFICATION OF PACKING

• Involve such respects as every package

putting, the piece and expenses packed,
etc., should confirm according to the
actual conditions.
 PACKING MARK

• Packing mark includes shipping mark, indicative

mark and dangerous cargo mark
• Shipping mark can be chosen by us, or by the
customer.

PACKING CHARGES

• Generally including in the price of goods

• Or not including in the price of goods, paid by
buyer.
 PRICE

Unit price and the total amount of payment

are extremely important in a contract. After
several rounds of offer and counter-offer, both
parties reach an agreement on the price. The
price clause should clearly indicate the
currency、price terms、unit price and the total
amount of payment. When writing the total
amount in capital, we always add “say” at the
beginning of the sentence, and “only” at the
end.
 PAYMENT

• This clause mainly includes：

• The means of payment
• Time and place of payment and so on
 TRANSPORT AND INSURANCE
• While negotiating, both parties must discuss
for the time of delivery, place of loading and
the destination, whether partial shipment or
transshipment, amount of insurance, risk,
insurance rate and which insurance clause of
insurance company being accurate.
• Shipment: different price terms must relate to
different responsibility and risk.
• Insurance: different price terms, different
person to fix insurance.
 STIPULATE THE FLEXIBLE RANGE

• In quality terms, add the clause such as “QUALITY

TO BE CONSIDERED AND BEING ABOUT EQUAL
TO THE SAMPLE.”
• According to the error of products quality that
internationally acknowledged, add “QUALITY
TOLERANT.”
• As to some primary product that quality is not very
steady, while regulating its quality index, can make
certain flexible range of quality separately, allow
certain range in the quality index of the goods that
sellers hand in, but should adjust prices according to
the situation of quality of delivering goods.
• While negotiate on quality, the seller can add
such in the contract: "If the quality the seller
delivers is defective, does not accord with the
regulation of the contract, the buyer can't cancel
contract, but can lodge a claim against seller."

USE VARIOUS KINDS OF

EXPRESSION METHODS PROPERLY
• Choose the way describe quality according to the
character.
• If can describe in one way, don’t use many ways.
 FORMULATE THE CLAUSE
ACCORDING TO ACTUAL ABILITY

• Pay attention to the science and

rationality. Avoid too high or too low.
• Pay attention to the inner link and
relation between every quality index.
 The prevention and
handling of dispute

Inspection Force majeure Arbitration

 INSPECTION
• The third party provides the inspection
certificate.
• At present in our country, examine in the export
country, re-inspects in import country.
• Inspection clause includes: inspection time,
inspection place, inspection organization,
inspection certificate, method of inspection, re-
inspect, etc.
 FORCE MAJEURE
– After the contract is signed, it is not fault or carelessness
of contracting parties, but because of the accident that
can't be predicted, can't be prevented and avoided, so
that the parties can't fulfill or can't fulfill the contract as
scheduled, so the party that had the accident, can avoid
the responsibility of fulfilling contract according to the
stipulations of the contract or the law, or postpone
fulfilling the contract.
 ARBITRATION
• Mean both parties while disputing, according
to the agreement between both sides, certain
organization as the third part, judge the fact
of the dispute or the rights and obligations,
thus solve the dispute.
• We should try our best to choose the national
arbitration organ or the arbitration organ of
the third country.
 品名
品质
数量
包装
本 价款
文
支付方式
运输与保险
履行期限及地点

争议的预防与处理
 品 质
• 一般要写明商品的名称与具
体品质。 规定机动幅度

品质 正确运用各种表示法

根据实际能力制定
 包装材料

包装方式

包 包装规格
装
包装标志

包装费用
 争议的预防与处理

商品检验 不可抗力 仲裁
 Summary
• This chapter has mainly introduced the
general procedures of business negotiation,
the basic contents and establishment of
contract, etc.
• Key point of this chapter: offer, acceptance
• Difficult point: the explanation of offer and
acceptance in “convention”.
• About the sample contract, please read the
text book P47-75
 Exercise

Please finish the exercise in the text book

Case Study: Please read your case book

 Case Study

1 Please write letters of enquiry, offer, counter-

offer and credit enquiry

2 Translate the contract you are given.

3 Case Study
 Case Study
• Company Y is to sell a certain number of sea food products: shrimp,
while Company W is an importer from Poland. On June 15th, 2009,
Company Y made a firm offer to Company W as follows: Sea food
of shrimp 100 tons, prompt shipment, irrevocable letter of credit at
sight payment at US$ 5 000 per ton CIF Rotterdam, the offer is valid
by June 23rd, 2009 by fax. Company W on June 20th, 2009 replied
as follows: Your offer on June 15th, 2009 was accepted with 100
tons of shrimp, prompt shipment, irrevocable letter of credit at sight
payment at US$ 5 000 per ton CIF Rotterdam, apart from the usual
shipping documents, certificate of origin, phytosanitary certificates, a
good maritime transport packaging are all requested. Company Y on
June 22nd replied as follows: We regret to tell you that due to price
changes in world market we have the goods sold before our
receiving your fax on 20th. The two sides regarded to the dispute that
whether the contract was set up.
• Question:
• Was the contract effectively set up? Why?
 Case Study
• In 2009, some import and export company sold a batch of non-food
corn to a Brazil company. The contract stipulated: Quality as the
marketable quality, with 98% of purity as the standard, impurity
less than 2%, shipment by marine transport, payment by D/A
payable by draft at usance in order to give the buyer a certain degree
of financial intermediation. Two months later when the goods
arrived at the destination, the buyer had the goods inspected by
inspection authorities, which showed that the quality of the received
goods was inferior to the quality as to which the contract was made
and took excessive aflatoxin in the corn as an excuse to refuse to pick
up the goods. After investigation, the survey showed that the original
quality of the goods would not influence the sales of the corn. The
real reason why the buyer breached the contract was that the market
price for corn during that time was declining. Through several
negotiations, the seller agreed to cut down the price by 30% so as to
conclude the business.
• Question: What can we learn from the case? 22
 Case 1
[Case Description]:
• Company A signs up a business contract with Company B, in which
there is a stipulation: “Company A must reply within 7 days after
receiving Company B’s order. If Company A can not reply within 7
days, then it is deemed to have accepted the order.” On March 10th,
Company A received an order for 500 metric tons of first grade rice
from Company B. But on April 5, Company A notified Company B
that Company A is not able to supply the 500 metric tons of first
grade rice. Company B lodged objections because he thinks that the
contract has already been set up. If Company A fails to fulfill the
obligations, it should pay for damages to Company B.
• Question:
• Can the contract between Company A and Company B be set up?
Why?
 Case 2
• A Chinese export company exported 3 000 tons of walnuts on the basis of
a CIF Avon moth to a British importer. Walnut is a best-selling Christmas
goods in Europe, so the United Kingdom importer required to ensure the
walnut arrival two weeks before Christmas, the two sides provided in the
contract that: The purchaser was required to open an L/C by the end of
August and the seller to ensure the goods arrive at the port of destination on
November 15th, otherwise, the buyer was entitled to cancel the contract.
• On receiving the L/C from the buyer, the seller delivered the goods by a
chartered vessel in early September. Thanks to the fact that the Suez Canal
was blocked at that time, the vessel had to bypass the Cape of Good Hope.
When the ship arrived at the Cape of Good Hope, the mainframe was out of
order. With a tugboat the vessel was towed to Avonmoth port and it was a
few days late; the goods were rejected by the British importer and had to be
sold locally, which resulted in a total loss of more than 70 million dollars for
the Chinese exporter.
• Question:
• Why did this event happen? How should we avoid it? Whether the
contract is also a CIF contract, and why?
 Case 3
• A Chinese company A received an offer from a foreign Company B on July
6th: “500 tons of malleable iron at US$ 890 per ton CFR Chinese port for
August shipment, payable by L/C at sight. This offer is subject to your
reply reaching our end within twenty days.” On July 17th Company A
replied: “If you can reduce your price to US$ 850 per ton, we can accept
the offer. Once there are disputes, China arbitration can be accepted.” The
foreign Company B replied in the same day: “The price for malleable iron
is firm. No price cut down. The arbitration term is acceptable”. Not long
after this counter-offer, Company A also found that the price for malleable
iron was upward. So on July 19th, Company A replied to Company B:
“Your offer of July 6th can be accepted and the relative L/C has been
opened. Please confirm.” But Company B did not confirm and sent the L/C
back.
• Question:
• Can the contract set up? Why?
 Case 4
• A Chinese import and export company received an offer from an Indian
company in Tehran, on May 20th, 2008: “5 000 pieces of hard-disc, 100
U.S. dollars per piece CIF China port, shipment in July, with sight letter of
credit, to be opened within 20 days”. The Chinese import and export
company replied on May 21st, 2008: “If the unit price is at USD 95 CIF
Chinese port, we can accept 5 000 pieces of the hard-disc, arbitration will
be claimed in China in case of a contract dispute.” The Indian company
replied: “As the market pricing is strong so the price can not be reduced,
arbitration conditions can be acceptable and reply ASAP.” At that time
price for hard-disc was going upward. On May 25th, 2008 the Chinese
import and export company replied: “We’ve accepted the offer you sent on
20th and the L/C has been opened with the Bank of China, please confirm
it.” But the Indian company did not identify it and returned the L/C.
• Question:
• (1) Whether the contract was established, and why?
• (2) Whether it’s our misplay?
 Case 5
• A Hong Kong middleman A, invited an offer from us by fax in
respect of our products. One of our companies, on June 8th, sent an
offer and stated that the offer was open by June 15th. On date 14th,
we received a L/C opened by the U.S. company B according to all
our terms of trade, simultaneously, we received a call from
Company A: “Your offer on the 8th were transferred to the U.S.
company B.” We found after the investigation that the commodity’s
market price soared, so, we returned the letter of credit to its issuing
bank, and then sent the new price directly to the American B, while
the American B claimed that the L/C was issued within the validity
period and refused to accept the new price and asked our shipping at
the original rate, or they will sue us.
• Question:
• Is the U.S. side’s request reasonable? Why?
 Case 6
• American company A sold Italian company B some corn. In the
offer, Company A listed all the transaction conditions and
pointed out: “Good Packing”. In the effective period of the offer,
Company B counter-offered by fax: “Acceptance. Goods should
be packed in new bags”. Company A began to prepare the goods
immediately when he received counter offer. Several days later,
the corn price was falling down. Company A urged company B
to open the L/C. But Company B replied: “You have not replied
to confirm our terms of packing, which should be packed in new
bags. So the contract can not be set up. We can not open the
letter of credit.”
• Question:
• What do you think of dealing with this problem? Please give
your reasons.